For years, many of our clients have faced challenging situations that their previous providers have placed them in. Some of the common issues include getting their funds blocked, accounts being frozen, licence application that took 2 years or longer, and incorporated entities intended for brokerages rendered useless due to banking issues.
This illustrates a few lessons. From selecting a jurisdiction to operate your forex brokerage, the target audiences to the permissible trading conditions, it is essential to have a detailed business plan which will consist of any potential expansion or limitations before you evaluate all possibilities.
Should there be any deficiencies, you can always consider compromising certain aspects with short-term solutions without jeopardising the bigger picture. The short-term solutions may require partnering; however, full autonomy (operating independently from other brokers and service providers) can be still achieved.
Having been in the business for more than a decade, our Chief Operations Officer, Ryan Tay emphasises the importance of having a solid business fundamental – “Failing to work within a short-term frame ensures stagnation and lack of growth. In 2-5 years, you will still be where you first started.”
Who would typically look to start a forex brokerage?
Although it is common for medium to large Forex Introducing Brokers (IBs) and White Labels to set up their own institutional structures to further enhance their operations, there are smaller networks that have succeeded in starting their brokerage with a sturdy business plan and the support of external funding.
With trading conditions getting more stringent in the more reputable jurisdictions, applicants have flocked to offshore forex licences thinking that it is the solution to all institutional problems. Despite offshore forex license the coming with a form of credibility and costs a lot lesser than other licences, it does come with a huge impediment – the bank account as most banks will not entertain unlicenced (or offshore) forex brokerage.
For more context, below are some options of Forex Licence (licenced/ unlicenced) with their attributes:
1. Offshore Licence
- Cayman Islands/ Seychelles/ Belize/ BVI/ Mauritius/ Bahamas/ Vanuatu/ Labuan
- Can be expensive to register and maintain
- Timeframe ranges from 2 months to 2 years depending on ongoing bureaucratic climate
- Physical office is a requirement, except for the Cayman Islands and Belize
Capital required:
Belize | $50k (List H), $500k (Full License) |
Labuan | $125k |
Bahamas | $120k – $300k depending on license type |
Cayman Islands | $100k |
Seychelles | $50k |
Vanuatu | Security bond of $50k |
Mauritius | $30k |
BVI | No capital requirement but proof of minimum 1Mil in shareholder’s bank account is compulsory |
2. Offshore Registration (often branded as a licence)
- St Vincent and the Grenadines / Marshall Islands
- Takes less than a month to incorporate
- No banking and PSPs will consider onboarding such firms. Typically go through payment “specialists” for payment functions, but as the deposits start to pile up, you will need to come up with a lot of reasons to the payment provider and eventually shut down
- No capital requirement
- Minimal cost to run but no functional banking structure
3. Adopting another offshore forex license as an umbrella (AR)
- Essentially acting as a forex IB with own branding
- No licence required
- No capital required
- Able to obtain technical and banking support from the licensed entity
- The licenced entity will be responsible for all compliance, banking, liquidity functions
- Depending on deal terms, you would most probably be looking into a revenue share structure
4. Adopting another offshore forex license by getting a White Label (WL)
- Can start as soon as the White Label is created
- No licence required
- Start-up cost depending on the White Label providers, typical range from $5k – $12k
- The licenced entity will be responsible for all compliance, banking, liquidity functions
- Depending on deal terms, you would most probably be looking into a revenue share structure
5. Purchase an existing offshore forex licence
- Purchase all/ partial shares
- Costs vary depending on entity assets/ years of operating/ structure
Brokerages may either opt for one of the above-mentioned, or they may opt for a combination of both due to:
- It will take a few months (or years) until you get an offshore forex license as central banks of offshore jurisdictions are causing massive delays in authorisations and revamp on certain regulations.
- It is unwise to act as a forex IB permanently, hence you would eventually have to get ahead of your own playing field.
There is no universal solution to the equation (cost of operating with your own structure, or profit-sharing or not doing either). If milestones are correctly set into place, every tool will be at your disposal. Although pricing is essential, it should not be the key focus that dictates your every decision. Even though complete setups come with higher costs, it solidifies your base to operate a brokerage; lower costs lead to incomplete structures that might (or might not) get the groundwork one.
However, should your business not require a full licence, the following are two other options:
1. Connecting offshore
With clients in Belize, Seychelles, the Caymans, Martial Islands, and St. Vincent offering the most flexible IB and White Label solutions, companies can tap onto the existing offerings.
2. Connecting in the EU
There are 28 member states offering strong partnerships to individuals and corporations with existing client base looking to connect. This provides companies with a wide range of options specific to their business needs.
How Desfran comes into the picture
Desfran’s solutions are to be sustainable and functional – whether the license is a full license (EU and/or offshore) or otherwise.
As our worldwide client base increases, the emergence of Forex IB and White Label plans allow institutional networks to work with some of the best professionals the industry has to offer. Be it existing established forex firms looking to expand or newly formed forex brokerages with a strong finance background and solid funding, offering very flexible terms to support their new ventures – Desfran offers comprehensive solutions to assist businesses to soar in their endeavours.
Contact Desfran for a consultation now.
